British stats watchdog - stop using RPI inflation gauge

Reuters Staff

2 Min Read

LONDON (Reuters) - Britain’s statistics watchdog said it was concerned that the retail price index (RPI), an older measure of inflation which is still used as a benchmark for government bonds and consumer contracts, remained in widespread use.

Earlier on Thursday the Office for National Statistics (ONS) said RPI was a “very poor” measure on inflation that had a tendency to overstate the extent of changes to prices, and at other times understate them.

RPI is used to calculate interest payments on inflation-linked British government debt, which accounts for roughly a third of the total. Excise duty tax rates, rents and mobile phone contracts are also commonly linked to RPI.

“With this strong evidence for the deficiencies of the RPI, I remain concerned by its widespread use,” said David Norgrove, chair of the UK Statistics Authority.

In March 2017 the ONS adopted CPIH as its official gauge of inflation in place of the widely-used Consumer Prices Index (CPI). CPIH is designed to include more housing costs than CPI.

In January this year, the RPI stood at an annual rate of 4 percent, compared with 3 percent for the CPI.

Norgrove said people should use the CPI - used by the Bank of England to target inflation - or CPIH instead of RPI.

The ONS has said RPI does not have the potential to become a good measure of inflation even it tried to address its shortcomings.

These include the outdated mathematical formula used in its calculation, plus the inclusion of house prices and mortgage interest payments, the ONS said.